Comparison pricing: the price is right.

17 March 2014 | Reading time: 3 minutes

The price is right.

Comparison advertising with two prices is frequently used as a powerful sales tool. Businesses often compare the price of a product with:

  • the company’s previous pricing (including ‘was/now’ or ‘strike through’ pricing or by specifying a particular dollar amount or percentage saving);
  • the ‘cost’ or wholesale price;
  • the competitor’s price; or
  • the recommended retail price (RRP).

The danger with such price comparison advertising is the risk that it may constitute misleading and deceptive conduct under the Competition and Consumer Act 2010 (Cth). The Australian Competition and Consumer Commission (ACCC) regularly investigates such pricing strategies.

WAS misleading NOW costly!.

Statements such as ‘Was $150/Now $100’ or ‘$150 Now $100′ are likely to be misleading if products have not been sold at the specified ‘before’ or ‘strike through’ prices in the period immediately before the sale commences.

Such statements are also likely to be misleading if only a limited proportion of a product’s sales were at the higher price in the period immediately before the sale commences. Guidance from the ACCC is limited on the periods of time and the volume and proportion of sales required saying only that it ‘will depend on the circumstances of each case.’1

Always on sale.

If a business has a practice of discounting goods when not on sale and uses two-price advertising in relation to sale periods, there is a risk that the use of two-price advertising will be misleading. The business would be representing to consumers that they will make a particular saving if they purchase the item during the sale period, when this may not necessarily be the case.

Other misleading comparisons.

Other examples of misleading price comparisons include:

  • Comparisons between ‘cost/wholesale’ and ‘sale’ prices if the specified ‘cost/wholesale’ price is greater than what the business paid for the goods. Consumers may be more likely to purchase goods if the gap between the wholesale and retail price is perceived to be smaller than what it actually is;
  • Comparisons between the price of a product and a competitor’s price for identical goods, but that price is taken from a different market or geographical location; and
  • Comparisons between a sale price to the RRP, by using statements such as ‘savings’ or ‘discounts’, may be misrepresenting potential savings if the product has never been sold at the RRP or the RRP does not reflect a current market price.

The jewel in the ACCC’s crown.

In The Jewellery Group Pty Ltd (Zamel’s) v Australian Competition & Consumer Commission [2013] FCAFC 144, the Federal Court imposed a penalty of $250,000 on Zamel’s for misleading consumers regarding savings made on jewellery.

Given that Zamel’s used statements such as ‘$99 $49.50′ or 1WAS $275 NOW $149′ and its customers were unaware they could obtain discounts outside Zamel’s sales periods, the Court found that:

  • Zamel’s misrepresented the savings consumers would make from purchasing jewellery items during sale periods;
  • Zamel’s represented to consumers that they would save an amount (being the difference between the higher and lower price if the items were purchased during the sale) when that was not the case; and
  • Zamel’s had either not sold some items at the higher price, or that it had sold a very limited quantity at the higher price prior to the sale commencing.

Practical tips for displaying two-price advertising.

Here are some helpful practical tips:

  • Keep records substantiating any two-price price claims. You may be required to substantiate such a claim to the ACCC if it investigates;
  • Implement an internal pricing policy manual, with references to the process for two-price comparisons; and
  • Remember that a ‘sale’ or ‘discounted’ price should only be available for a limited period. This is because if a reasonable amount of time has elapsed and an item is still ‘on sale’, the discounted price effectively becomes the new selling price, so it may be misleading to continue to call it a ‘discount’ or ‘sale’ price.